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Three New Reasons for Companies to Improve Board Diversity

By Melissa J. Anderson

We’ve discussed the business case for board diversity – whether gender, ethnicity, disability, or otherwise – several times on Evolved Employer. For examples, studies like Catalyst’s report “The Bottom Line: Connecting Corporate Performance and Gender Diversity” revealed that companies whose boards had a better gender mix tended to perform better than those with fewer women.

Companies with more diversity at the top have a better chance at attracting and retaining diverse talent, as well. And empowering every employee to perform at their highest capability is what companies sorely need in order to innovate and remain competitive.

But those reasons simply aren’t enough for some individuals, who stand in the way of initiatives designed to improve corporate diversity. Here are three more reasons that companies need to improve boardroom diversity.

1. Growing Importance of Emerging Markets

Recently Intel Chairman Jane Shaw discussed the importance of increasing board diversity to include individuals from the emerging markets. And it makes sense – according to Businessweek, last year more than 16 percent of its revenue from China.

But, Shaw said, “Our biggest market right now is China, and we have no global representation on the board and that is an issue they need to address.”

As the company seeks to increase its presence in areas like China, India, or Brazil, having that cultural knowledge on its board would be an asset.

Shaw said the company has done significant work around increasing gender diversity within the ranks of the company – especially at the recruitment level – and now it is “particularly looking at diversity on a broader basis,” by creating mentoring groups for minorities within the company.

2. Finite Supply – For Now

If companies don’t face mandated gender quotas now, they can at least admit that they are facing political or cultural pressure to improve diversity.

This can be a challenge for some companies – particularly those whose internal workforces don’t contain much diversity. For example, a recent New York Times article details the challenges Deutsche Telekom has faced in improving board and senior management diversity.

In March of last year, Deutsche Telekom’s CEO Rene Olbermann announced that by March of 2015, 30 percent of senior and middle management positions would have to be composed of women. In Germany, Nicola Clark explained, culturally very few women work after having children – and it makes it more difficult for companies to ensure women are qualified for board service or senior management. She wrote:

In Germany, resistance remains strong to legislated quotas similar to those for corporate boards in Norway, France, Spain and other European countries. But a survey of 160 leading German companies published this year by Signium International, an executive recruiting firm, found that 71 percent of respondents were prepared to increase the number of women in top ranks and 90 percent had discussed doing so.

Yet few could imagine women holding much more than 20 percent of corporate board seats — in part, perhaps, because there are few suitable candidates.

“There is actually very little resistance in the boards of DAX companies to increasing the number of women on their boards,” said Ann Frances Kelly, a partner at Signium based in Düsseldorf. “The problem is that there are not yet enough qualified women in leadership roles out there — in comparable organizations, in operational roles — to circumvent the problem.”

So while companies are making inroads when it comes to recruitment, like Intel and Deutsche Telekom, which is now recruiting slightly more women than men at the entry level, they are facing significant challenges when it comes to finding senior women to serve on boards.

And, they face additional pressure by smart qualified individuals who know their services are in demand. For example, as boards scramble to improve diversity, powerful women have the opportunity to turn down the ones they deem unworthy.

This week Ann Mulcahy, former CEO of Xerox, spoke at Fortune’s Most Powerful Women’s Summit about her experience and advice on serving on boards. And one of the things she advised women to avoid is boards that had no women.  She said, “It’s a bad sign. Boards without women – blacklist those suckers. It’s 2011. They’ve had the time – it’s significant that they don’t have women.”

What it all adds up to is that at least for the near future, there may not be enough diversity to go around at the very highest board levels. And with qualified diverse individuals being able to pick and choose where they’d like to go, companies may wind up losing the diversity game, even if they have the best of intentions.

3. Burgeoning Transparency

Finally, the web has enabled a significant shift toward transparency and easy access to internal corporate data. And some organizations are taking advantage of that shift to begin to publicly name and shame those companies that are not performing well when it comes to diversity.

For example, beginning in January of 2010, 2020 Women on Boards will provide an online database quantifying the gender diversity on the boards of the 2010 Fortune 1000 list.

“Visitors to 2020WOB.com will be able to research board diversity stats by company, state or industry, and advocate for change by congratulating the companies that have achieved or surpassed the goal and encourage the companies that haven’t to do better,” said Malli Gero, 2020 Women on Boards Executive Director.

Similarly, earlier this year, the Alliance for Board Diversity released a census detailing the board diversity demographics of Fortune 500 companies, when it comes to gender and ethnicity. And the census named those companies that had no women or ethnic minorities on their boards.

As the global conversation around ethnicity, gender, and power continues to develop, even if companies are not convinced about the business case for diversity, they should at least be able to admit that their reputation is harmed when attention is called to their lack of diversity at the top.

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